Will DeFi replace the banking system?

Will DeFi Replace The Banking System?

When Bitcoin was introduced in 2009 as a peer to peer electronic cash system, the financial system was dominated by Banks. Over time Bitcoin has continued to gain territory as the banks experience a downward spiral. Many evolutions have come out of Bitcoin as well, innovations such as Decentralized Finance, a better alternative to the existing financial system. With the continual rise of DeFi and the world's top 2 Banks' coming close to a collapse will banks be flushed out of the system? And can there be a successful financial system without banks?

"I see a future where banks will custody crypto";these are the words of Emmanuel Babalola, the CEO of Bundle, a crypto finance platform. According to him, in the future crypto will be inculcated into bank services. Babalola admitted he used to believe that the blockchain and DeFi will make banks obsolete however upon reconsideration of the idea he realized that that believe was merely a myth.

In his reasoning banks will not stand by and watch as their own extinction occurs,rather he believes that banks will evolve to acknowledge cryptocurrencies just like post offices adapted with the emergence of email. He further went on to explain that cryptocurreny is an alternative and not a replacement.

A CLOSE LOOK AT DEFI AS POTENTIAL BANK KILLER

Though Babalola thinks the idea that DeFi will replace Banks is nothing but myth, many others think the exact opposite. They present compelling evidence to back their claim.

What Is DeFi?

Before we talk about the clash between DeFi and banks let's learn a little bit about DeFi. As stated by Investopedia, Decentralized Finance(DeFi) is a growing financial technology that runs on blockchain technology just like cryptocurreny does. It is a system which allows you to access financial services such as loans, transfers and even insurance using funds in cryptocurreny.

It's pretty much like opening a bank account, just that this time it's easier and more convenient since you don't have to go through the long process characteristic of banks. It's basically a bank right in your pocket.

Proponents believe DeFi can and will replace traditional banking systems because it is faster, cheaper and safer. They further strengthen their stance, citing the hostility of banks towards DeFi as a prove of it's potential. This seems to be true as all across the globe most financial regulators do not hide their displeasure with the increased adaptation of crypto.

Just this June the National Bank of Ethiopia banned the use of cryptocurreny in the country. Banks in other countries have also taken similar action against cryptocurrency. For instance the UK prohibited the use of binance in June last year. Proponents believe banks take such actions against crypto because it poses a great threat to them.

IF YOU CAN'T BEAT THEM JOIN THEM.

As expected most of these bans and sanctions against cryptocurrency have had close to no effect on them. So some of these banks have made a U-turn on their decisions.

The bank of Ethiopia saw a reversal in it's decision as the country mandated all crypto companies to register with the Information Network Security Administration, the country's cybersecurity agency.

The Central Bank of Nigeria, which had earlier issued a directive to stop commercial Banks from soliciting crypto transactions, followed suit by launching it's first ever digital currency, the eNaira.

The question still remains unanswered. Will DeFi replace banks?

Though proponents argue that DeFi is a safer alternative information from REKT database show that over 2,700 attacks were made on DeFi protocols over the past decade. This led to an accumulated loss of nearly 5 billion dollars.

It is also true that traditional financial systems are not immune to cyber attacks either. Records show that Fiat money is used nearly a 1000 times more in scams than cryptocurreny is. The sharp contrast is due to the more widespread use of fiat.

So what do you think? Will DeFi replace the banking system? Let me know in the comments.